Do you pay yourself first?
Why do you work so hard for your money? And what are you doing today to make sure that your money will work as hard for you in the future? Will there be any money left from each paycheck to put to work? Or are we just paying bills to maintain the status quo?
Surely, there’s more to it than that!
I’m sure that you’ve heard Einstein’s definition of insanity… doing the same thing over and over and expecting a different result.
So, you know that for things to change, you must change.
You would think that all of the money you make is yours to keep. I mean it really is all your money (after Uncle Sam gets his share!)
But after that, isn’t it your money?
It is, but what happens next will determine if you’ll be enjoying your Golden Years or greeting shoppers as they head into Walmart.
This is important! So pay attention!
Do You Make This Mistake With Your Paycheck?
This is the key building block that starts your wealth engine.
Everyone looks forward to payday. You’re excited because you have some money to take care of your bills. After that, you’ve worked hard, so it’s time to enjoy yourself a little. And then, it’s all gone… until your next pay day.
Let’s change things up a little. What if we set some money aside for your future first, and then paid your bills?
Before you pay any of your bills, set aside a portion of your pay. Put some money in your 401k, Roth IRA, or savings.
The very first bill you pay each and every pay day should be to yourself. You may already be doing this through automatic payroll deductions into your 401k, and didn’t even realize it. If you are… I congratulate you! If you’re not, it’s time to get you started.
This is where paying yourself first comes into play.
Nobody else is going to do it for you!
Most people do just the opposite… and rarely have anything left over to put away for later.
Something amazing happens when you make a decision and tell yourself that you’re going to set aside money for yourself. And that it’s more important than all the other bills that need to be paid.
Once you get used to the idea—and see your savings start to accumulate—it becomes kind of addictive. The more you save, the more you’ll want to save!
Be a Rebel – Break Parkinson’s Law
Parkinson’s Law in general terms says that the demand on resources tends to expand to match the supply of the resources. So, in terms of your paycheck, the demand will almost always match the supply. And given the availability of easy credit, most would spend at least 10% more than they make.
The thing about money is that if it’s just laying around somewhere, you will always find a way to spend it. Whether you’re married or have a family, it seems there’s always an excuse or reason to spend money. If it’s in your pocket… or in your checking account… it won’t be there for long!
Be deliberate with your money. With crystal clear clarity, determine what you want to do with your money. Does it make sense to set some aside for the future? Absolutely!
A good starting point is 10% of your income. And with every pay raise or new job with a greater salary, take that opportunity to increase the amount you set aside for yourself. Set this money aside as a reward to you. After all, you deserve it!
How Paying Yourself First Works
Most people say they don’t have any extra money after the bills are paid. It’s time to start thinking long-term. It’s time to change your life.
Start off with setting at least 10% of your income aside, either in a separate savings account or investment account. If your work offers to match any contributions to your 401k account, that would be a great place to start.
You can make excuses or you can make it happen! You choose!
No more excuses about not having enough left over to save for retirement, or invest enough, or save a big enough emergency fund, because you don’t have the money to save more.
You’re paying yourself first, so there will always be enough money for you! The tougher choices may be what becomes less important in your budget. And no cheating by using a credit card to make up any difference.
“Pay yourself first” doesn’t refer to how you earn money. It refers to how to save and invest money.
Pay your own savings and investment accounts first. For example:
- Pay into your retirement accounts, such as your 401k and your Roth IRA.
- Buy reasonable levels of insurance, including life insurance
- Feed your emergency fund
- Get rid of your current debt and don’t incur any new ones
Make It Happen… Automatically
Set everything up on autopilot. Speak with someone in HR and let them know you want to automatically put money in your 401k… or have it go directly into your Roth IRA
Once you set up an automatic transfer into your savings and retirement accounts, you can set it and forget it.
When you’re successful in saving, investing and accumulating wealth, you will be absolutely shocked at how quickly your account balances increase.
Make Your Money Work For You
Have you seen Disney’s The Sorcerer’s Apprentice? Do you remember the scene where Mickey discovers his powers to put the magic brooms to work? And they keep multiplying and multiplying?
That’s exactly what I want your money to do for you. But you have to have something to start with.
Pay yourself first! You really are that important! No one else is going to take care of it for you. And you really don’t want to rely on the government for your retirement, do you?
The concept is simple: Every payday, the very first thing you do is set aside a percentage of your income into a savings or investment account. You do this before you pay the rent or mortgage, before you pay your other bills, and before you head to happy hour. You “pay yourself first.”
Prioritize paying yourself first over and above all of your other bills. Make savings the most important “bill” that you pay. Pay that bill first.
Because this approach increases the likelihood that you’ll save a substantial amount. It converts saving money from a desire into a necessity. Your retirement and your emergency fund savings become a bill that MUST be paid every month.
To pay yourself first means you are setting money aside for your future… and NOT working for Walmart when you’re 80 years old!
Paying yourself first is one of the foundational principles in getting your money to work for you and it’s the most important thing you can do with the money you earn..
Let me know how you’re doing.